Integrated opimization of safety stock and transportation capacity

Abstract

We consider a segment of a supply chain comprising an inventory and  a transportation system that cooperate in the fulfillment of stochastic customer orders. The inventory is operated under a discrete time $(r,s,q)$ policy with backorders. The transportation system consists of an in-house transportation capacity which can be extended by costly external transportation capacity (such as a third-party logistics provider). We show that in a system of this kind stock-outs and the resulting accumulation of inventory backorders introduces volatility in the workload of the transportation process.  Geunes and Zeng (2001) have shown for a base-stock system, that backordering decreases the variability of transportation orders. Our findings show, that in inventory systems with order cycles longer than one period the opposite is true. In both cases, however, inventory decisions and transportation decision must be taken simultaneously.

We present a procedure to compute the probability distribution of the number of transportation orders and the resulting excess transportation requirements or rather transportation costs. We show that the increase of transportation costs resulting from a safety stock reduction may offset the change of the inventory costs. This effect may have a significant impact on general optimality statements for multi-echelon inventory systems.

About the presenter

Dr. Tempelmeier is Full Professor for Supply Chain Management and Production at the University of Cologne since 1993. Prior to his current position, he was Professor for Production Management at the Technical Universities of Braunschweig (1988-1993) and Darmstadt (1983-1988). He holds a doctoral degree (Dr. rer. pol.)  from the University of Trier (1979) and completed the German postdoctoral Habilitation degree in Business Management at the University of Trier (1982). He has published numerous papers in scientific journals such as OR Spectrum, European Journal of Operational Research, Production and Operations Management, AIIE Transactions etc. He is author and co-author of a number of textbooks on production, logistics, inventory management and flexible manufacturing systems. His current research focusses on the design of production systems under conditions of randomness, inventory management and lot sizing.

More info about Prof. Tempelmeier

About the Seminar

The KLU research seminar series is a regular meeting of PhD students, Post-Docs and professors who conduct research in the field of logistics and supply chain management. The research seminar is open to the public and we happily welcome guests.